Journalists and politicians must not have enough to do in the post-Christmas dip. “Action looms to curb executive pay” proclaims the FT on January 5 the day before the UK’s Prime Minister David Cameron devotes precious prime time on Radio 4’s flagship breakfast talk show “Today” to declare he is “not satisfied with top pay”.

To quote the FT: “Nick Clegg, the deputy prime minister, has denounced a system of “crony capitalism” in which senior business figures appeared on various company boards, often setting each other’s pay.” and “proposals to change the structure of remuneration committees, which politicians have complained are “closed shops” of vested interests, are proving divisive. Policies under consideration include barring executive directors at FTSE 100 companies from chairing remuneration committees at other companies.”

Given the facts of the situation its hardly surprising there’s division.

Contrary to popular misconception, the existing provisions of the UK Corporate Governance Code (the culmination of market comply or explain consensus, not proxy advisor hegemony) have proven effective in that there are very few cross memberships of remuneration committees and indeed the overwhelming majority of FTSE 100 remuneration committee members do not sit on any other FTSE 100 remuneration committee.

Based on Manifest’s analysis of annual reports as at 30th June 2011 the situation is as follows:

Table 1: FTSE 100 Cross-directorships

FTSE 100 cross-directorships



Sample of FTSE 100 companies analysed



Total number of directors serving at some time in year



Number with one FTSE 100 directorship only



Directors on two FTSE 100 boards



Directors on three or four FTSE 100 boards



Executive directors on board of another FTSE 100 company
(as a non-executive director)



…of which an executive director in turn serves on their board



…of which an NED in turn serves on their board




Next, let us look at the situation when it comes to serving executive directors who sit on other companies remuneration committees

Table 2: FTSE100 Live Execs on Other Remuneration Committees


Remuneration Committee Role

Individual Surname

Is Exec At




Johnson Matthey




Johnson Matthey 

Burberry Group 



Smiths Group

Capita Group



Legal & General Group





Compass Group



Associated British Foods

Compass Group




HSBC Holdings




Imperial Tobacco Group



International Power




RSA Insurance Group




National Grid

Marks & Spencer Group



National Grid




Land Securities Group

Reckitt Benckiser Group



Compass Group

Reckitt Benckiser Group







Reed Elsevier

Severn Trent












WM Morrison Supermarkets



International Power

Note: Haste left RSA at 31 Dec 2011

By using yet more bad data and to enable quick “appearance fixes” which do little to solve the real problem of excessive pay we run a serious risk of undermining an important debate. The excessive pay of bankers/the city has been conflated with high pay in industry. They are not the same problem.

We see a definite benefit to a provision in the Code that the remuneration committee should not comprise a majority of  former public company CEOs. This should not be restricted to former/current directorships of UK companies – there is a particular need to include US company directorships in this provision given the endemic reward-for-failure bias of US remuneration systems.

It might seem a tad churlish to turn away ministerial attentions after corporate governance has languished on the sidelines for so many years BUT given the extensive governance wish lists of  the investors we work for (board diversity, accounting standards reform, Big 4 dominance, free-float issues, sustainability……), Ministers might want to ask themselves a couple of questions about priorities:

1. Which are more damaging to corporate performance – Investment Bankers (current or former) or CEOs?
Investors have no control over the former, the latter (in the UK at least) can be voted on and in extremis, be removed by simple majority; and 

2. Is it more important to legislate against (literally) a handful of directors rather to tackle the vested interests of custodian banks which perpetuate barriers to effective cross border voting?

If one remuneration consultant controlled 97% of the remuneration policies of FTSE100 companies, MPs would be falling over themselves to legislate. Regrettably no-one bats an eye-lid that custodian banks used pooled nominee accounts to dictate that 97% of ALL shareholders votes are forced to be processed through an American voting system that’s not fit for purpose in the UK (vote tapping is only the thin end of the wedge) and which the SEC reckons is not up to the job in the US either.

Last Updated: 6 January 2012


  1. Willoughby Posted on 8 January 2012 at 2:40 pm

    Why can’t CEO’s renumeration be tied to that of the lowest paid employee in the company, say by some agreed multiple?

  2. Cameron Smith Posted on 8 January 2012 at 4:24 pm

    Does this picture change if you extend the analysis to include the FTSE 250 as well (which, though smaller in terms of total market capitalization, is still comprised of companies large enough to have a “boardroom culture”)?

  3. Sarah Wilson Posted on 8 January 2012 at 4:39 pm

    Can’t pull the data straight away but will certainly look again to test the theory. However there is strong academic evidence that board interlocks are not the cause of escalating reward. To quote evidence from Columbia Business School whose analysis time frame was from 1992 (4 years longer than Manifest’s) “the much vaunted power of board interlocks were negligible.”

  4. Chris Victor Posted on 8 January 2012 at 5:20 pm

    Is there a problem with the advice that remuneration committees are given?
    I heard an interview on Radio 4 relating that a large company received professional remuneration advice that it should pay its directors the upper quartile of pay for directors of similar sized companies. Once more than a quarter of companies receive this advice, there is a tendency for run away pay escalation. With restraint, it would be theoretically possible for the upper quartile, mean and lower quartile to all be the same. It just probably isn’t going to happen as doubtless there is some rounding up for each settlement, which together with individuals receiving extra rises for various reasons all propagate into rising pay.
    Is it too cynical to suggest that the most successful remuneration advisers will be those that recommend the highest settlements? I suggest the remuneration advisers’ identity, actual advice and justification should be published in the accounts.

    1. Sarah Wilson Posted on 8 January 2012 at 5:43 pm

      The Lake Wobegon Director effect you mean? It is worth remembering that the same problems exist with footballers or Hollywood film directors/actors.

      Most companies do now identify their consultants and there is a Remuneration Consultants Group which operates a code of conduct in an attempt to oversee their activity:

      Remuneration consultants are not employed by the CEOs but by the independent outside directors. Some companies use more than one consultant.

      Effective shareholder-aligned remuneration is complex, mistakes have been made all around but unfortunately there isn’t a single silver bullet. The current debate has been muddied by a great deal of misinformation such that the really important issues – such as clawbacks are almost entirely absent. There is also confusion about what is “The City”. Only a small number of plc directors work for City firms, the majority work in industry and their companies are quoted and traded by The City but they are not in the same category as investment bankers.

  5. andy hill Posted on 8 January 2012 at 10:18 pm

    Do you have an life insurance policy?Do you have a personal pension?Do you hold unit trusts or an index tracking investment?

    If yes your money is used to vote on board structures and remuneration.Ask your provider what is your voting policy? How did you vote and where on the web do you publish your voting activity? Can you prove your votes were cast, ideally in segregated shares?

    Demand democracy for your wealth!

    1. Sarah Wilson Posted on 8 January 2012 at 11:46 pm

      Well said, thank you. Be part of the solution.

  6. guycallaghan Posted on 9 January 2012 at 10:31 am

    @Willoughby – pay multiple caps could trigger some unwanted consequences. A CEO might be earning 100 times the minimum-waged cleaning staff. Replace the cleaning staff with an outsourced company and suddenly the CEO’s multiple drops.

  7. DrBlighty Posted on 10 January 2012 at 12:47 pm

    So has research been conducted to identify the occupations, professions, titles, and employers of members of FTSE 100 remuneration committees? Who appoints the remuneration committees, if not the executive directors who remuneration is being determined? Now that research would reveal something useful!

    1. Sarah Wilson Posted on 10 January 2012 at 1:33 pm

      Yes, it is interesting research and we have been doing it since 1995 so we do know their ages, gender, professions, titles and other jobs.
      Most boards are now comprised on non-executive directors, not executives and the major shareholders – pension funds, insurance companies are consulted for their input. There is still a problem of “diversity” – which is more than just gender – but UK boards are the most diverse they have ever been and certainly more diverse than other markets. There is still a way to go but long-term informed shareholders are pushing in the right direction.

  8. Stephen Morris Posted on 10 January 2012 at 12:51 pm

    Who appoints the members of the remuneration committees?

    1. Sarah Wilson Posted on 10 January 2012 at 1:49 pm

      The nomination committee which is comprised of the whole board and each year shareholders vote on all the directors. In the UK the directors can be removed by a simple majority of 50% plus 1 vote. In the US shareholders can vote against directors but they don’t have to resign and can carry on working for the company.

  9. Per Kurowski Posted on 5 February 2012 at 3:49 pm

    But, what about crony journalism?

    In the UK, Sir Fred Goodwin was recently stripped of his “Sir”. That is not a bad or uncivilized way to shame those who seemingly have done society wrong… and society needs urgently to regain some serious shaming powers. But, in all justice, should we not also strip for instance the Financial Times of its honorable motto, because of what looks to be a case of crony journalism?

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